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Dec 11, 2025
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Big income tax benefits under new labour laws: How revised wage definition works in your favour
The Modi government last month implemented the 4 Labour Codes, which, among several other things, are expected to reshape how salaried Indians earn, save and pay taxes. These Codes are – Code on Wages, Industrial Relations Code, Social Security Code, and Occupational Safety, Health & Working Conditions (OSHWC) Code. The third Code – Social Security Code – deals with various laws related to employees’ social security benefits and schemes like EPF, gratuity and other schemes. The Code also brings clarity with regard to the definition of ‘wages’ under the new law.
By redefining what counts as “wages” and mandating that basic pay should form at least 50% of salary, these laws may reduce your monthly take-home, but they also strengthen your long-term wealth and improve tax efficiency.
The government’s aim is clear. As per the notification, “Wages” now include basic pay, dearness allowance, and retaining allowance; 50% of the total remuneration (or such percentage as may be notified) shall be added back to compute wages, ensuring consistency for gratuity, pension and social security benefits.
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